The home secretary, Theresa May, has said revelations that police used the identities of dead children will be investigated by an independent police chief with an expertise in corruption.

The Guardian revealed last week how police resurrected the identities of dead children so they could be used by undercover officers spying on political groups. Relatives who were never consulted or informed that their deceased children's identities were being used have reacted furiously to the revelations and demanded a thorough investigation.

The Metropolitan police had previously said the disclosures would be investigated by Operation Herne, a long-running review into the special demonstration squad, one of two units believed to have used the identities of dead children. The review was being supervised by the Independent Police Complaints Commission and led by a senior Met officer. However, on Monday May told MPs that a police chief from an outside force would take over the inquiry.

"Given the seriousness of the latest allegations, the Metropolitan police commissioner, Sir Bernard Hogan-Howe, and the chair of the IPCC, Dame Anne Owers, have agreed that it would be appropriate for a senior figure from outside the Metropolitan police to take over the leadership of this investigation," she said.

"Chief Constable Mick Creedon of Derbyshire police has agreed to take on the leadership of that investigation, called Operation Herne. He brings to the case many years' experience as a detective and has led several major investigations, including police corruption cases and reviews into investigations by other forces, such as the Rhys Jones murder in Merseyside in 2007."

May added: "The investigation will be under the direction and control of Chief Constable Creedon but will remain under the supervision of the Independent Police Complaints Commission, who will provide further external and independent scrutiny of this investigation."

The decision followed discussions between Scotland Yard and the Home Office. Responding to a question from the Labour MP David Winnick, who is urging the Met to contact families whose dead children's identities were used, May said: "The honourable gentlemen makes the point that if this is indeed the case, then it is absolutely disgraceful that this has happened. The investigation is still ongoing to establish the facts."

Operation Herne has a staff of more than 30 and has so far cost £1.25m. It has been running for more than a year under the leadership of the Met's deputy assistant commissioner Patricia Gallan.

A number of senior figures, including the former director of public prosecutions Ken MacDonald, have said police should not be investigating themselves, and called for a judge-led public inquiry into undercover policing.

Eleven women are currently suing the Met police, claiming they formed long-term intimate and sexual relationships with undercover operatives posing as political activists.

Hogan-Howe acknowledged "justifiable concerns" over the covert operations and said he hoped the appointment of Creedon would reassure the public.

"The review and investigation [Gallan] has been leading has been impartial and robust. However, given the justifiable concerns that have been raised about the previous practices of some undercover officers, I believe public confidence will be best served by having an independent chief constable in charge," he said.

"I'm grateful that Derbyshire chief Mick Creedon, a highly experienced officer, has agreed to take on this role. Our priority now is to work with Chief Constable Mick Creedon and his team to support a thorough and impartial investigation to establish the facts about what took place."

Gallan told a parliamentary inquiry last week that although the practice of using dead children's identities no longer occurred, it appeared to have been more widespread than first thought, involving two separate police units, the SDS and the national public order intelligence unit, which was founded in 1999.

Gallan refused to apologise to the families involved or give any indication of how many deceased children's identities were adopted by police in a technique nicknamed the "jackal run" after its fictional depiction in Frederick Forsyth's novel The Day of the Jackal. However, the involvement of two separate units indicates the total number of families could exceed 100.